6/9. David McCormick, Under Secretary at the Department of Commerce's
Bureau of Industry of Security (BIS), gave a
speech at
the Center for Strategic and International Studies (CSIS) in Washington DC. He primarily
discussed the direction of BIS regulation of exports to the Peoples Republic of China.

But first, he said that "Intellectual Property Rights remain a very important
subject. The foundation of America's competitiveness is a knowledge-based,
innovation-driven economy. And that economy depends not only on a well-educated
and skilled workforce, but also global intellectual property protection. A
responsible stakeholder should not tolerate widespread theft of intellectual
property. Not only is piracy of ideas rampant in China , but also two-thirds of
all the phony goods seized by U.S. Customs come from China . In addition, we
know that 90 percent of the software sold within China was pirated."

McCormick (at right) also said
that "Human Rights is another issue of concern", including "internet
censorship". He elaborated, "How can one open a society to trade and maximize
the flow of information that it requires, but also maintain the political restrictions
that China has tried to impose? In the long run, you cannot."

The BIS regulates exports from the U.S., and matters related to exports.
Hence, it has no authority related to over human rights or IPR enforcement.

McCormick next discussed the BIS's area of responsibility. He said that
"China's military modernization is a third area of concern, and one which is
particularly central to export control policy." He said the U.S. export control
policy must ensure that exported dual use technologies must be used for civilian
purposes, and not also be used to advance China's military.

He asserted that the BIS "has made real progress in evolving our strategic
trade controls in the past several years in ways that have been beneficial for
both the United States and China."

He elaborated that "For certain technologies, our new policy will free future
trade of dual use items with certified importers in China for civilian purposes.
U.S. exporters seeking to grow market share in critical sectors such as
semiconductor equipment and electronics will be spared the need to apply for
licenses for potentially hundreds of millions of dollars worth of sales to these
companies in China."

"This aspect of the policy, however, not only frees up legitimate trade, but
also increases U.S. security by ensuring closer scrutiny of key technology
purchasers in China", said McCormick. "To become eligible, Chinese companies
must demonstrate an established record of nonproliferation and responsible
civilian use of U.S. imports. This process will require unprecedented openness
and cooperation on the part of Chinese companies. And it will create incentives
for them to demonstrate good faith and sound practices. In addition, it will
allow U.S. government officials to focus on more complex cases with more severe
implications for American security."

He continued that "The new policy will also bolster U.S. security by
preventing exports of technologies for incorporation into Chinese weapons
systems. It is not a wide-ranging ``catch-all regulation´´ that subjects
everything from fountain pens to office furniture to government scrutiny.
Rather, these changes carefully target certain technologies that, while
unrestricted until now, have the potential to materially enhance China's
military capabilities."

He added that "The Administration will also urge others, particularly in
Europe and Japan, to take similar steps. And we will continue to conduct
on-the-ground spot checks in China to reduce the risk that civilian exports are
diverted to third parties or to China's own military purposes."

He said that "lawmakers and regulators" "make things so needlessly
complicated". And, he said that "Our capital markets rely on trust, and
investors can't trust legalese and jargon."

He said that the function of financial journalists is to translate government jargon,
and the financial reports of public companies, into plain English. He added that "our
entire free enterprise system would crumble without the work of thousands of journalists
competing to discover the truth."

He also said that "Someone's always going to try to shoot the messenger. But know
that the SEC will not be one of them."

However, he acknowledged that "the SEC earlier this year subpoenaed some
journalists". But, he insisted, "issuing a subpoena to a journalist will be
exceedingly rare".

He also discussed the SEC's rulemaking and enforcement activities with
respect to executive compensation and back dating of stock options.

Bernanke (at right) said that
"technological change and innovation are today in large part driving economic growth
and the improvement of living standards".

He elaborated that "even the very best ideas in science or engineering do not
automatically translate into broader economic prosperity. In large measure, the
material benefits of innovation spring from complementarities between technology and
economics, where I include in ``economics´´ not only economic ideas but also economic
policies and, indeed, the entire economic system. When the economics is right, scientific
and technological advances promote economic development, which in turn, in a virtuous
circle, may provide resources and incentives that help to foster more innovation."

He argued that the case of the former Soviet Union is consistent with this
theory. He said that it "did not lack for scientific and engineering talent but
which had an economic system that was poorly suited for translating scientific
advances into economic progress".

He also argued that the case of the United States in the last ten years
supports his theory. He explained that "Before the mid-1990s, the growth of
productivity -- the amount of output produced per worker or per hour of work --
had been relatively sluggish for more than two decades in this country." Then,
"In the mid-1990s, however, productivity growth picked up in the United States.
The growth rate of productivity increased still further around the turn of the
century and remains strong today."

He then argued that "the pickup in U.S. productivity growth in the mid-1990s was
importantly related to advances in information and communication technologies."

He then offered an explanation for why information technology boosted U.S.
productivity, but not productivity in Europe -- the "complementarity of
technology and economics."

First, he pointed to regulation of labor markets. He said that "taking full
advantage of new information and communication technologies may require extensive
reorganization of work practices, reassignment and retraining of workers, and ultimately
some reallocation of labor among firms and industries. Regulations that raise the costs
of hiring and firing workers and that reduce employers’ ability to change work assignments
-- like those in a number of European countries, for example -- may make such changes
more difficult to achieve."

Second, he pointed to regulation of production. He said that "a high degree
of competition and low barriers to the entry of new firms in most industries in
the United States provide strong incentives for firms to find ways to cut costs
and to improve their products. In some other countries, in contrast, the
prominence of government-owned firms with a degree of monopoly power, together
with a regulatory environment that protects large incumbent firms and makes the
entry of new firms difficult, reduces the competitive pressure for innovation
and the application of new ideas."

Third, he pointed to "free and open trade; companies that are exposed to
global competition tend to be much more efficient and to produce goods of higher
quality than companies that are sheltered from international competition."

Fourth, he noted that "Some observers point to the depth, liquidity, and
sophistication of American financial markets as contributing to recent
productivity gains. Sizable markets for venture capital and ready access to
equity financing facilitate start-up enterprises, which are often the best means
of bringing new technologies to the market."

Fifth, he said that the U.S. "benefits from its high-quality research
universities, which have shown both the willingness and the ability to
collaborate with the private sector and, in some cases, with the government as
well, in the development and commercialization of new ideas."

Sixth, he said that the "relatively more positive attitudes toward competition
and entrepreneurship in the United States -- a factor that spans economics and sociology
-- may also stimulate innovation and its commercial application as well as economic
policies that support innovation.

Seventh, he said that "Management practices also differ across countries".
However, he did not identify any of the better practices.

Finally, he identified one economic policy that hinders the U.S. He said that
this is "the relatively poor performance of our K-12 educational system in
stimulating interest in and providing solid training in the sciences".

He also discussed, in a different part of his speech, an aspect of the U.S.
commercial and social culture that may also contribute to higher relative
creativity, economic growth, and productivity growth in the U.S. than in Europe,
Japan, and other developed nations.

He said, "it is OK to fail".

He added that "New opportunities will always arise for those who seek them.
If you remain nimble in searching out new and unexpected opportunities, it will
not only benefit you, but it will also benefit the economy and our society, as
long experience has shown that dynamism and creativity are the seeds of
innovation and of progress."

Notably, Bernanke said nothing about policies related to patents, copyrights,
or other areas of intellectual property. Also, he had nothing to say about tax
policies, such as the research and development tax credit. Finally, he said
nothing about immigration and visas for innovation sector individuals.

Bernanke also said that a "significant amount of time passes between the
initial development and diffusion of new technologies and the realization of the
associated productivity benefits", and that this has been observed with
information and communications technologies.

He suggested that for firms to realize productivity gains from new
technologies, they must both invest in the physical technology, and in
"intangible technology". He elaborated that adopting new technology also
requires firms "to make collateral investments in research and development,
organizational structure, and employee training."

That is, it takes companies and people years to figure out how to make good
use of their new computers and software. This, suggested Bernanke, offers an
explanation for why personal computers, and associated software, were developed in
the 1980s, but increases in productivity did not appear until the 1990s.

The written transcript of Bernanke's speech also contains hyperlinks to six
papers (and cites a seventh) which support arguments made in the speech.

Bernanke's speech is largely consistent with speeches given in recent years
by former Chairman Alan Greenspan and former Vice Chairman Roger Ferguson. All
have argued that productivity growth in the U.S. picked up around 1995, that
this was the result of the adoption of new information technologies, and that
this has caused economic growth and higher living standards. Also, all have left
the role of intellectual property out of their analyses.

Judge David Sentelle wrote the opinion of the Court, in which Judge Janice Brown
joined. Judge Harry Edwards wrote an emphatic dissent. He wrote that the FCC "forgot
to read the words of the statute", that its order "manufactures broad new powers
out of thin air", and that its legal argument in defense of the broadband service
providers portion of the order is "utter gobbledygook".

This opinion is a significant victory for the Department of Justice, Federal
Bureau of Investigation, and National Security Agency, which seek to maintain
universal surveillance capabilities across all communications and information
technologies.

Opponents of the FCC's order from the technology sector, academia, and the
privacy and civil rights community have argued that it will increase prices
consumers pay for services, harm network and information security, reduce
technological innovation, drive businesses offshore, and harm privacy.

The CALEA provides that telecommunications carriers must design their equipment and
networks to facilitate lawfully conducted wiretaps and other intercepts. Broadband
service providers are not carriers, either under the plain meanings of the Communications
Act, or under FCC determinations. Nevertheless, the Department of Justice asked the FCC
to write rules concluding that, for the purposes of the CALEA, broadband service providers
are carriers. The FCC complied. Petitions for review were then filed. The just issued
opinion denies these petitions, thereby upholding the FCC's determination.

The FCC based its determination on two separate grounds. First, it concluded
that the definition of "telecommunications carrier" in CALEA is different and
much broader than the definition of that term in the Communications Act, and can
encompass providers of services that are not classified as telecommunications
services under the Communications Act. Second, it asserted that the services
covered by the order replace a substantial portion of conventional
telecommunications services. There is a series of articles in
TLJ Daily E-Mail
Alert 960, August 17, 2004, which offer the legal analysis that neither of
these two legal arguments is tenable.

Dissent. Judge Edwards wrote in his dissent
that "In determining that broadband Internet providers are subject to CALEA as
``telecommunications carriers,´´ and not excluded pursuant to the ``information
services´´´ exemption, the Commission apparently forgot to read the words of the
statute. CALEA does not give the FCC unlimited authority to regulate every
telecommunications service that might conceivably be used to assist law
enforcement. Quite the contrary. Section 1002 is precise and limited in its
scope. It expressly states that the statute's assistance capability requirements
``do not apply to [ ] information services.´´ Id. Broadband Internet is an
“information service” – indeed, the Commission does not dispute this. Therefore,
broadband Internet providers are exempt from the substantive provisions of CALEA."

He added that "The FCC apparently believes that law enforcement
will be better served if broadband Internet providers are subject to CALEA’s
assistance capability requirements. Although the agency may be correct, it is
not congressionally authorized to implement this view."

He also wrote that "What we see in this case is an agency
attempting to squeeze authority from a statute that does not give it. The FCC’s
interpretation completely nullifies the information services exception and
manufactures broad new powers out of thin air."

Judge Edwards did agree with the majority, however, regarding
the portion of the FCC's order pertaining to interconnected voice over internet
protocol (VOIP) providers. He wrote that "There is no doubt that VoIP replaces a
substantial portion of local telephone exchange service -- it offers exactly the
same functionality as phone service. And, in contrast to broadband service, the
Commission has explicitly refrained from designating VoIP as an information
service under the Communications Act".

Reaction. FCC Chairman Kevin Martin stated in a
release
[PDF] that "Enabling
law enforcement to ensure our safety and security is of paramount importance. Today,
the United States Court of Appeals for the District of Columbia Circuit affirmed the
Commission’s decision concluding that VoIP and facilities-based broadband Internet access
providers have CALEA obligations similar to those of telephone companies. I am pleased
that the Court agreed with the Commission’s finding, which will ensure that law
enforcement agencies' ability to conduct lawful court-ordered electronic surveillance
will keep pace with new communication technologies."

Jim Dempsey of the Center for Democracy &
Technology (CDT) stated in a release that "This ruling threatens both civil
liberties and to technology innovation". He added that "Congress intended to
exclude the Internet from the wiretap design mandates, because the Internet is
fundamentally different from the telephone network. The FCC wanted a certain
result from the get-go, and they twisted or ignored the words of the statute to
get it. This decision threatens the privacy rights of innocent Americans as well
as the ability of technology companies to innovate freely."

This case is American Council on Education, et al. v. FCC and USA,
U.S. Court of Appeals for the District of Columbia, App. Ct. Nos. 05-1404, 1408, 1438,
1451 and 1453, Judges Sentelle, Brown and Edwards presiding.

People and Appointments

6/9. Jeffrey Rosen was named General Counsel of the
Office of Management and Budget (OMB). See,
OMB release
[PDF]. He was previously General Counsel at the Department of Transportation.
Before that, he was a partner at the law firm of Kirkland & Ellis.

6/9. President Bush announced his intent to nominate Randall Fort to be
Assistant Secretary of State for Intelligence and Research. He is currently Co-Head of
Global Security at Goldman Sachs. See, White House
release.

6/9. President Bush nominated Alexander Acosta to be the U.S. Attorney for
the Southern District of Florida for the term of four years. See, White House
release.

6/9. President Bush nominated Troy Eid to be be the U.S. Attorney for
the District of Colorado for the term of four years. See, White House
release.

6/9. President Bush nominated Phillip Green to be the U.S. Attorney
for the Southern District of Illinois for the term of four years. See, White House
release.

6/9. President Bush nominated George Holding to be U.S. Attorney for
the Eastern District of North Carolina for the term of four years. See, White House
release.

6/9. President Bush nominated Sharon Lynn Potter to be the U.S. Attorney for the
Northern District of West Virginia for the term of four years. See, White House
release.

6/9. President Bush nominated Brett Tolman to be the U.S. Attorney for
the District of Utah for the term of four years. See, White House
release. He
is currently Chief Counsel for the Senate Judiciary
Committee's (SJC) Crime and Terrorism Unit.

More News

6/9. The Progress and Freedom Foundation (PFF) released
a paper
titled "Rhetoric vs. Reality: Lessig on Network Neutrality".
The author is the PFF's Kyle Dixon. He rebuts the
op-ed
titled "No Tolls on the Internet" by Lawrence Lessig and
Robert McChesney published in the June 8 issue of the Washington Post.

6/9. Robert Cresanti, the Under Secretary of Commerce for Technology, gave a
speech titled "Technology
Administration Revivification of U.S. S&T
Competence & Competitiveness" to the Institute of Electrical and Electronics
Engineers (IEEE) in Cambridge, Massachusetts.

House Approves COPE Act, Without Network
Neutrality Amendment

6/8. The House amended and approved
HR 5252,
the "Communications Opportunity, Promotion, and Enhancement Act of 2006" (COPE
Act). The vote on final approval was 321-101. See,
Roll Call No. 241.

The House approved the Smith antitrust amendment by a vote of 353-68.. See,
Roll Call No. 238.
Republicans voted 222-1. Rep. James
Sensenbrenner (R-WI) cast the only Republican vote against this amendment. He also
voted for the Markey amendment, and against final passage.

The bill as introduced and approved makes changes to the discussion draft that was
circulated on June 7, 2006, and hyperlinked in the story titled "CIIP May Mark Up
SIRA" in TLJ Daily E-Mail Alert No. 1,386, June 7, 2006.

The bill would revise
17 U.S.C. § 115 to provide digital music providers, such as Apple's iTunes, a blanket
compulsory license for digital phonorecord deliveries and hybrid offerings.

Rep. Smith, the Chairman of
the CIIP Subcommittee, and sponsor of HR 5553, wrote in a statement that
"Retailers and online companies should be competing with each other, not competing
with piracy".

6/8. Peter
Mandelson, the European Trade Commissioner, gave a
speech titled "A World of Opportunity: China and the future of international
trade" in Beijing, PR China. He discussed many trade related subjects, including
intellectual property rights (IPR) and IPR enforcement.

Mandelson (at left)
said that "in the global information economy, knowledge is a currency of its own.
All of us are taking steps to focus political attention on education and skills. This
involves unprecedented investment, rules that protect intellectual property and a
willingness to embrace innovation and the risks of entrepreneurship. Europe is benefiting
from the talent of our newest Member States; here in China you are producing more
than 4 million science graduates and 600,000 engineers each year."

He continued that "As tariffs and quotas are progressively reduced, the
greatest barriers to trade are becoming regulatory barriers -- non-transparent
licensing and standards enforcement, or poor protection for intellectual property rights.
We need to work out together new responses to these new priorities."

He elaborated that there is a "serious problem" with IPR enforcement in the
PRC. "The EU produces expensive, innovative and branded products. To retain
their value these products depend on a robust international system to protect
brands, patents and copyright. This is an area where we need to work with China
to deliver rapid progress. And developing more robust IPR protection will also
help China develop her own brands and patents in the future. Please do bear that
in mind. I was pleased yesterday to sign an agreement to prevent the sale of
counterfeit goods in some markets here. I have also agreed with Minister Bo,
whom I value as both a friend and colleague, to work together to open new
centres in China to monitor and enforce IPR compliance."

He also used this speech to identity other trade related problems in the PRC:
"New non-tariff barriers such as procedures for product certification, labelling
approvals, or approval of ingredients. Lengthy authorisation periods.
Unjustified sanitary barriers in agricultural trade. The adoption of national
standards that do not match widely accepted international ones. Failure to open
up government procurement. Complex rules restricting foreign investment. Unequal
access to banking finance."

He also said that "Trade in services is an area where China has made some
ambitious commitments in the WTO, but where these commitments have not yet been
translated into real opportunities for our operators: for instance in the
financial, telecom and construction sectors. Yet opening these sectors would be
in China’s interest. Opening up banking would allow enterprises to have better
access to capital funding; opening telecoms would contribute to a more dynamic
telecom sector, more jobs and cheaper calls."

On the other hand, Mandelson did not mention any of the trade restraining
protectionist policies pursued by the European Union.

He also addressed the importance of the Doha round of trade negotiations. He
stated that "our highest priority right now in the ``globalisation agenda´´ is
an ambitious and successful conclusion of the Doha Development Round. There is
no better means to reach the UN Millennium Development Goals. Failure to broker
a deal would shake public confidence in our capacity to ensure that the benefits
of globalisation are fairly shared. It would risk fuelling protectionism. It
would weaken the rules-based international trading system and would make life
much harder for China in growing your external trade. Doha is, in all these
respects, too important to fail."

He also said that he wants to work with the Chinese to remove trade barriers,
and that doing so will benefit both Europe and the PRC.

Schwab released a
statement after her confirmation. She wrote that "Trade is one of President
Bush's top priorities. He has championed a compelling vision that will increase trade
flows, create new economic opportunities for all countries, alleviate poverty in the
developing world and promote democratic reform."

She added that "I am eager to move ahead with our bilateral and multilateral
efforts to realize the president's vision for free and fair trade. And I look forward to
working closely with members of the House and Senate to
advance the interests of American farmers, workers, businesses and service
providers as we advance America's pro-trade agenda."

Sen. Charles Grassley (R-IA), the
Chairman of the Senate Finance Committee,
spoke in support of Schwab in the Senate. He also said that "We need to achieve
substantial progress in the Doha Round negotiations, and soon, if we’re going to
succeed in getting an agreement before trade promotion authority expires next
year. And we still have a long way to go to reach an ambitious outcome that
would be acceptable to the United States Congress."

Sen. Grassley continued that "We're also in the process of negotiating free trade
agreements with a number of important trading partners, including South Korea
and Malaysia. Our negotiations with South Korea and Malaysia will present new
challenges, particularly in addressing regulatory and other non-tariff barriers
to trade. It’s essential that our bilateral negotiations with South Korea,
Malaysia, and other nations conclude in time to be considered under trade
promotion authority."

In addition, it's important that our next
Trade Representative continue to encourage meaningful regulatory reform in other
major trading partners such as Japan and China." He added that "we in
Congress need to recommit ourselves to securing improved market access for our
exporters, both in the Doha Round negotiations and by means of bilateral and
regional trade agreements."

6/8. The Senate confirmed Noel Hillman to be a Judge
of the U.S. District Court for the District of New Jersey by a vote of 98-0. See,
Roll Call No. 166.

6/8. The Senate confirmed Thomas Ludington to be a Judge of the U.S.
District Court for the Eastern District of Michigan. See, Congressional
Record, March 8, 2006, at Page S5675.

6/8. The Senate confirmed Sean Cox to be a Judge of the U.S. District
Court for the Eastern District of Michigan. See, Congressional Record,
March 8, 2006, at Page S5675.

More News

6/8. The U.S. Court of Appeals (FedCir)
issued its opinion
[PDF] in Xerox v. 3Com, a patent infringement case involving
computerized interpretation of handwritten text. This action involves assertions
by Xerox that 3Com's handwriting recognition technology named "Graffiti", which
is in Palm's Pilot, infringes Xerox's U.S. Patent No. 5,596,656. The District
Court granted summary judgment of invalidity that several claims of the Xerox patent
are invalid. The Court of Appeals reversed in part, vacated in part, and remanded. This
case is Xerox Corporation v. 3Com Corporation, et al., U.S. Court of Appeals for
the Federal Circuit, App. Ct. No. 04-1470, an appeal from the U.S. District Court for
the Western District of New York, Judge Michael Telesca presiding.

6/8. The National Telecommunications and Information
Administration (NTIA) published a
notice in the Federal Register that describes, and sets the comment deadline (July
10, 2006) for, its notice of inquiry (NOI) regarding "implementation of the Spectrum
Sharing Innovation Test-Bed (Test-Bed) where Federal and non-Federal users can study the
feasibility of increasing the efficient use of the spectrum". See, Federal Register,
June 8, 2006, Vol. 71, No. 110, at Pages 33282-33284.

Sen. Stevens Discusses His Communications
Bill

6/7. Sen. Ted Stevens (R-AK), the Chairman
of the Senate Commerce Committee, gave a
speech in Washington DC to the National Cable and Telecommunications Association
(NCTA). He discussed his bill,
S 2686, the
"Communications, Consumers' Choice, and Broadband Deployment Act".

Sen. Stevens (at right)
discussed the video franchising section of the bill. "One area where there has been
much discussion is the concern of local governments. They expressed them to the Committee
at out first legislative hearing in May, their concerns about the provision in our first
bill. In response to their concerns, I’ve asked my staff to work with local government,
with USTA, and NCTA to seek a compromise on franchise reform."

He added that "I do believe that we’re going to be able to do what I said in
the beginning -- create a level playing field, between cable and the Bells,
encourage competition and the deployment of broadband, and in the process,
create even more jobs as we go along. To strike a balance and level that playing
field, this bill provides cable operators with interconnection rights."

He also discussed network neutrality. He said that "I think the compromise
should and will focus on protecting the needs and rights of consumers,
preserving network management, and staying away from the commercial interaction
between companies that I refer to, that is so large, as a battle of the titans,
when they get into a fight. I see no reason why we should use government lawyers
to try and referee a fight between billion and billion dollar entities that are
disputing their rights with one another. I think the FCC should be there to protect the
consumer and to ensure that there is a level playing field for everybody."

And, he said that "A new draft will be circulated this week."

Rules Committee Adopts Rule for
Consideration of COPE Act

6/7. The House Rules Committee (HRC) adopted
a structured rule for the consideration of
HR 5252, the
"Communications Opportunity, Promotion, and Enhancement Act of 2006" (COPE Act).
The House may begin consideration of the bill on Thursday, June 8.

However, the HRC did not make in order another amendment offered by
Rep.
James Sensenbrenner (R-WI), Chairman of the
House Judiciary Committee (HJC), that
would have given the courts authority under the Clayton Act to enforce network
neutrality principles. But, the HRC made in order an
amendment [3 pages in PDF] offered by
Rep. Lamar Smith (R-TX) regarding
preservation of antitrust authority.

The HRC also rejected an amendment offered by Rep.
Charles Gonzalez (D-TX) that would have extended network neutrality
principles to cover large content aggregators, such as Google and Yahoo.

The HRC also made in order an
amendment [3 pages in PDF] offered by
Rep. Gil Gutknecht (R-MN)
and others that would expand the entities that would be required to pay
universal service taxes to include VOIP service providers. It would also require
VOIP service providers to pay "for the transportation of a VOIP service over the
facilities and equipment of another provider".

The HRC rejected many amendments pertaining to Title I of the bill, which
establishes a national cable franchise. It rejected proposals to add buildout
requirements (amendment offered by Rep. Hilda Solis) and further
anti-discrimination requirements (Rep. Hilda Solis). It rejected a proposal to
provide for local enforcement of rights of way disputes (Rep. Mike Doyle). It
also rejected a proposal to provide VOIP service providers the same statutory
immunity from liability for providing 911 and E911 service that communications
carriers already (Rep. Bart Gordon).

The HRC also rejected many proposed amendments with little, if any,
connection to the underlying bill. It rejected amendments pertaining to media
concentration (Rep. Maurice Hinchey), revival of the fairness doctrine (Rep.
Maurice Hinchey), resolution of the Washington Nationals cable rights dispute
(Rep. Jim Davis), and creating an Office of Internet Safety and Public Awareness
at the FTC (Rep. Melissa Bean).

Network Neutrality. Rep. Markey (at
right) spoke at the HRC meeting on June 7 to advocate his network neutrality amendment.

He argued that the "non-discriminatory nature of the internet" should not be
changed by the cable and phone companies. He argued that without his amendment
those companies will afflict the internet with their bureaucratic analog mind set.

The Markey amendment would replace the current language with a broader
network neutrality mandate. This amendment is based upon (but makes many changes
to) HR 5273,
the "Network Neutrality Act of 2006", a bill introduced by Rep. Markey and
others on May 2, 2006. See, story titled "Rep. Markey Introduces Network
Neutrality Bill" in
TLJ Daily E-Mail Alert
No. 1,363, May 3, 2006.

The amendment first identifies a collection of national policies regarding
maintaining an open internet. It then imposes a collection of duties
upon each "broadband network provider". It then enumerates excepted activities.
It then provides for an expedited complaint process at the FCC.

One of the provisions that is in this amendment, but not HR 5273, is an
antitrust savings clause. It provides that "Nothing in this section shall be
construed to modify, impair, or supersede the applicability of the antitrust
laws, as such term is defined in section 602(e)(4) of the Telecommunications Act
of 1996."

Rep. James Sensenbrenner
(R-WI) (at left), the Chairman of the House
Judiciary Committee (HJC), and Rep. John
Conyers (D-MI), the ranking Democrat on the HJC, offered a related amendment, that
was not made in order. It is substantially similar to
HR 5417, the
"Internet Freedom and Nondiscrimination Act of 2006", which the HJC approved on
May 25, 2006. See, story
titled "House Judiciary Committee Approves Net Neutrality Bill" in TLJ Daily E-Mail
Alert No. 1,379, May 26, 2006.

While the Markey amendment, which was made in order, would impose certain
duties upon each "broadband network provider", and then give the FCC enforcement
authority, the Sensenbrenner amendment would have amended the Clayton Act to
prohibit certain practices by "any broadband network provider". That
is, it would have provided for judicial enforcement.

Rep. Sensenbrenner argued that "the antitrust laws should apply uniformly
across the board", while HR 5252 leaves the FCC with exclusive authority to deal
with anti-competitive conduct by broadband network providers.

Rep. Sensenbrenner also argued that if the HRC were to make this amendment in
order, it would avoid the problem of bringing two separate bills to the House
floor, and sending two related bills to the Senate.

However, the HRC made in order a more limited amendment offered by
Rep. Lamar Smith (R-TX), a member
of the HJC, which would add a new subsection (d) to network neutrality language
in the bill. It is as follows:

"(d)(1)RULE OF CONSTRUCTION.---Nothing in this section shall be
construed to modify, impair, or supercede the applicability of the antitrust
laws or the jurisdiction of the district courts of the United States to hear
claims arising under the antitrust laws.
(2) DEFINITION OF ANTITRUST LAWS.---The term 'antitrust laws' has
the meaning given to it in subsection (a) of the first section of the Clayton
Act (15 U.S.C. 12(a)), except that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent that such section 5 applies to
unfair methods of competition."

Rep. Smith did not attend the HRC meeting.

Rep.
Charles Gonzalez (D-TX) (at right) offered a related amendment, that was not made
in order. It would have extended network neutrality principles to major content
aggregators, such as Google and Yahoo. He said that Google and Yahoo in the
search market, and eBay in the auction market, are close to being monopolies.

He also said that they already have entered into contracts that provide for
the sort of prioritization that the proponents of the Markey amendment predict
the broadband network providers will enter into.

His amendment was not made in order. It serves the purpose of shifting some
attention from the motivations and likely business practices of the large
access providers, such as SBC, AT&T and Verizon, to the motivations and business
practices of the large internet content providers.

"RULE OF CONSTRUCTION.---Nothing in this Act (including the amendments made
in this Act) shall be construed to exempt a VOIP service provider from
requirements imposed by the Federal Communications Commission or a State
commission on all VOIP service providers to
(1) pay appropriate compensation for the transportation of a VOIP
service over the facilities and equipment of another provider; or
(2) contribute on an equitable and non-discriminatory basis to the
preservation and advancement of universal service."

Rep. Gutknecht, who was joined by Rep.
Bart Stupak (D-MI) and Rep.
Collin Peterson (D-MN), argued the universal service portion of this
amendment. He argued that services in rural areas need to be subsidized.

Other Amendments Made in Order. The HRC also made in order several
amendments to Title I of the bill. The HRC made in order an
amendment [2 pages in PDF] offered by Rep. Sheila Lee (D-TX) that would
reduce the PEG/iNET fee from 1% to .5% for "a cable operator that is a small
business concern owned and controlled by socially and economically disadvantaged
individuals or a small business concern that is owned and controlled by women".

The HRC also made in order an
amendment [7 pages in PDF] offered by
Rep. Al Wynn (D-MD) that would allow local franchising authorities to issue
an order requiring compliance with FCC consumer protection rules.

The HRC also made in order an
amendment [2 pages in PDF] offered by Rep. Eddie Johnson (D-TX) that would
increase from $500,000 to $750,000 the penalty for an operator who discriminates
by denying access to a service on the basis of income.

The HRC also made in order an
amendment [3 pages in PDF] offered by Rep.
Bobbie Rush (D-IL) that provides for a complaint process to resolve fee disputes.

Data Retention. There is nothing in the bill as reported by the HCC,
the manager's amendment, or any of the other amendments made in order, that would
impose a data retention requirement on internet service providers.

During the HCC mark up on April 26, 2006, Rep. Barton and
Rep. Diana DeGette (D-CO)
discussed adding a data retention mandate to the bill when the bill went to the
full House. See, story titled "House Commerce Committee Considers Data Retention
Mandate" in TLJ Daily E-Mail Alert No. 1,365, May 8, 2006.

The House could take up the COPE Act on Thursday, June 8. However, the House has several
other items on its schedule for Thursday, including HR 5522, the "Foreign Operations,
Export Financing, and Related Programs Appropriations Act, 2007".

It is possible that the House will not begin consideration of the COPE Act until
Friday, June 9. Alternatively, it might take up the rule for consideration of the bill on
Thursday, but leave consideration of the bill for Friday.

House Approves Broadcast Decency Enforcement
Act

6/7. The House approved
S 193, the
"Broadcast Decency Enforcement Act of 2005", by a vote of 379-35. See,
Roll Call No. 230. The Senate
approved the bill on May 18, 2006. President Bush will sign this bill.

This bill amends
47 U.S.C. § 503 to increase the maximum
forfeiture penalty for the broadcast of obscene, indecent, or profane
language from $32,500 to $325,000.

Rep. Joe Barton (R-TX), stated that
"It is time that we reclaim America's airwaves for decency, and this bill is a
firm message that we have had enough".

President Bush stated in a
release that "I applaud the Congress for passing S. 193, the Broadcast
Decency Enforcement Act. I believe that government has a responsibility to help
strengthen families. This legislation will make television and radio more family
friendly by allowing the FCC to impose stiffer fines on broadcasters who air
obscene or indecent programming. I look forward to signing this important
legislation into law."

FCC Chairman Kevin Martin wrote
that "I welcome Congress' decision to give the Commission increased fining authority
in our efforts to protect children from inappropriate programming. Many parents are
increasingly concerned about what is on television and radio today. Today's vote
demonstrates that Congress shares their concern and has a clear desire for a
more meaningful enforcement of our decency standard. The Broadcast Decency
Enforcement Act gives the Commission more tools to enable parents to watch
television and listen to radio as a family. In addition, I believe that
concerns regarding content should be addressed in a comprehensive fashion by
empowering parents to choose the programming that comes into their homes."

FCC Commissioner Deborah Tate
wrote that "Congress has once again sent a firm message that the minds of our
children are a national priority. Increased fines strengthen the FCC’s ability to
enforce the law. I take this responsibility very seriously. However, it will take more
than cleaning up indecency to make television a positive force in our children’s lives.
We need to also give parents more choice in the channels sent into their homes, find
ways to make our children more media literate, and promote the production of
more positive, educational, and inspirational children’s programming."

CIIP May Mark Up SIRA

6/7. The
House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet,
and Intellectual Property (CIIP) may meet to mark up a discussion draft the "Section 115 Reform Act (SIRA) of 2006"
as early as Thursday afternoon, June 8, 2006

The event is not yet listed in the calendar of the HJC web site. A spokesman
for the HJC told TLJ that nothing is on the calendar. However, a member of
Rep. Lamar Smith's (R-TX) staff
told TLJ that the bill may be marked up as early as Thursday afternoon.

Rep. Smith, the Chairman of the Subcommittee on CIIP, has not has yet introduced
a bill. However, there have been several discussion drafts. See,
June
7, 2006, version [52 pages in PDF] of this draft.

17 U.S.C. § 115, which is titled "Scope of exclusive rights in nondramatic
musical works: Compulsory license for making and distributing phonorecords",
covers the licensing of the reproduction and distribution rights for nondramatic
musical works. There is a wide degree of consensus that Section 115 is obsolete in
addressing many issues raised by new technologies and services, and in need of
reform. However, there is much dispute regarding how to revise it.

The discussion draft takes a blanket licensing approach to the digital
reproduction and distribution of musical works.

The discussion draft also provides for a collective licensing structure for online music
services through the use of designated agents. It also addresses royalty rates.

The DiMA represents companies that provide internet radio, music download and music
subscription services, including AOL Music, Yahoo! Music, MSN Music, RealNetworks, the
iTunes Music Store, MTV, and Napster. The DiMA's Potter praised the discussion draft.
The NMPA's Israelite also praised the discussion draft.

However, the RIAA's Sherman criticized the draft bill. First, he wrote that
"New technologies have presented so many opportunities: not just online music
services, but also ringtones; DVDs, DualDiscs, and other kinds of multisession
discs; locked content; music videos; and hybrid offerings that combine physical
and online elements – including kiosks and bundled offerings. Because Section
115 is a relic of a different time, every one of these has presented new
mechanical licensing challenges, and our ability to resolve them and get
products into the market is falling behind."

Then, he complained that the bill "removes record companies from the digital
music value chain", "nullifies license agreements negotiated by record
companies", prohibits "licensing of record company online activities", and
"requires that record companies pay administrative costs as both licensors and
licensees".

In addition, the Copyright Office
prepared a statement
for the May 16 hearing. It wrote that the discussion draft of the SIRA "appears
to be a productive step forward in modernizing section 115 of the Copyright Act
for the digital age".

It also wrote that "The SIRA appropriately focuses on those issues absolutely
necessary to establish a functional licensing structure to enable legitimate
music services to provide, and the consuming public to enjoy, vast quantities
and varieties of music through the digital delivery of music online. It is also
appropriate that the SIRA leaves undisturbed the structure established by
section 115 for the reproduction and distribution of nondramatic musical works
in physical formats (e.g., compact discs, vinyl records and cassette tapes), a
structure that has worked well for that marketplace. (Parentheses in original.
Footnote omitted.)

A collection of companies and groups sent a letter to Rep. Smith and
Rep. Howard Berman (D-CA) on June 6,
2006, expressing opposition to the bill. They wrote that the draft bill "would
constitute an extraordinary expansion of copyright rights that would harm
technology, innovation, and consumers" and "threaten the development of new,
innovative technologies and services that deliver all forms of content".

They continued that "This bill apparently reflects a privately negotiated
outcome between two interest groups, and does not reflect such a consensus."
(The bill reflects agreement between the DiMA and
NMPA.) The letter added that "Any change as major as SIRA merits careful
consideration and input from all users of copyrighted works, and from the
general public."

More specifically, they wrote that "The bill appears to establish, for the
first time, that every incidental, server, cache, network and buffer copy made
in digital transmission systems, digital networks, and computers and other
personal consumer equipment is subject to the control of copyright owners and
must be licensed. The bill erroneously suggests that interactive public
performances of sound recordings are ``digital phonorecord deliveries´´ (i.e., a transfer
of ownership) subject to license for reproductions of copies. The bill goes so
far as to provide that even noninteractive public performances require licenses
for such copies. There is no justification to so penalize streaming, or, indeed,
any other type of licensed transmission made via internet or any digital
communications network, based on such a technicality. Virtually every digital
transmission and display technology requires some degree of caching or
buffering. ... Where a transmission is lawfully made, there is no basis for
giving copyright owners added control because of incidental copies that have no
independent economic value apart from the performance itself."

They also wrote that "The bill also appears to establish, for the first time,
that every digital performance or display also is a distribution, for which the
transmitter must take additional licenses, and potentially pay duplicative fees,
for consumer conduct that long has been considered private, noncommercial ``fair
use.´´" Moreover, "The apparent requirement that fair uses be licensed -- even
at a zero rate -- sets a dangerous precedent for all fair uses of information,
news and entertainment, regardless of whether in print, audio or video."

They added that "The bill would effectively declare all home recording – even
time-shifting – to be unlawful without a reproduction license."

6/7. Sen. Arlen Specter (R-PA) sent a
letter
to Vice President Dick Cheney regarding the Senate
Judiciary Committee's investigation into the National Security Agency's (NSA)
interception of communications, including the possibility that it will subpoena executives
at telecommunications companies.

He wrote that "When there were public disclosures about the telephone companies
turning over millions of customer records involving allegedly billions of telephone calls,
the Judiciary Committee scheduled a hearing of the chief executive officers of
the four telephone companies involved. When some of the companies requested
subpoenas so they would not be volunteers, we responded that we would honor that
request. Later, the companies indicated that if the hearing were closed to the
public, they would not need subpoenas."

He continued that "I then sought Committee approval, which is necessary under our
rules, to have a closed session to protect the confidentiality of any classified
information and scheduled a Judiciary Committee Executive Session for 2:30 P.M. yesterday
to get that approval."

"I was advised yesterday that you had called Republican members of the Judiciary
Committee lobbying them to oppose any Judiciary Committee hearing, even a closed one, with
the telephone companies. I was further advised that you told those Republican members
that the telephone companies had been instructed not to provide any information to the
Committee as they were prohibited from disclosing classified information."

He also wrote that "If an accommodation cannot be reached with the Administration,
the Judiciary Committee will consider confronting the issue with subpoenas and enforcement
of that compulsory process if it appears that a majority vote will be forthcoming.
The Committee would obviously have a much easier time making our case for
enforcement of subpoenas against the telephone companies which do not have the
plea of executive privilege."

More Capitol Hill News

6/7. The House Science Committee HSC)
amended and approved
HR 5356, the
"Early Career Research Act of 2006". The HSC approved an amendment
in the nature of a substitute that incorporated
HR 5357, the
"Research for Competitiveness Act of 2006", into HR 5356.

6/7. The Progress and Freedom Foundation (PFF)
published a
transcript [33 pages in PDF] of its March 31, 2006, panel discussion titled
"Orphan Works: A Search for Solutions". The
Copyright Office issued its report
[133 pages in PDF] titled "Report on Orphan Works" on January 31, 2006. The
House Judiciary Committee's Subcommittee on Courts, the Internet and
Intellectual Property approved
HR 5439 [PDF], the "Orphan Works Act of 2006", by voice vote, on
May 24, 2006.

The Municipality of Guayanilla enacted an ordinance imposing a 5% of gross revenue fee
on telecommunications providers for their use of public rights of way within the
municipality.

Puerto Rico Telephone Company (PRTC) filed a complaint in U.S. District Court
(DPR) against the municipality alleging violation of
47
U.S.C. § 253. The District Court held that the ordinance is preempted by Section 253.

The Court of Appeals affirmed.

This case is Puerto Rico Telephone Company, Inc. v. Municipality of
Guayanilla, et al., U.S. Court of Appeals for the 1st Circuit, App. Ct. No.
05-1400, an appeal from the U.S. District Court for the District of Puerto Rico,
Judge Salvador Casellas presiding.

6/6. The Senate confirmed Renee Bumb to be a Judge of the U.S.
District Court for the District of New Jersey by a vote of 89-0. See,
Roll Call No. 162.

6/6. President Bush nominated Marcia Howard to be a Judge of the U.S.
District Court for the Middle District of Florida. See, White House release.

6/6. President Bush nominated Leslie Southwick to be a Judge of the
U.S. District Court for the Southern District of Mississippi. See, White
House
release.

6/6. President Bush announced his intent to designate Lieutenant General Ronald
Burgess to be acting Principal Deputy Director of National Intelligence. See, White
House
release.

6/6. Jeanne Bumpus was named Director of the
Federal Trade Commission's (FTC) Office of Congressional
Relations. She is currently Staff Director for the Senate Committee on Indian Affairs.
She replaces Anna Davis who left the FTC to become the Executive Director for
Legislative Affairs at the National Board of Professional Teaching Standards. See, FTC
release.

More News

6/6. The House approved
HR 5126, the
"Truth in Caller ID Act of 2006", by voice vote.

6/6. The House began its consideration of
S 193,
the "Broadcast Decency Enforcement Act of 2005". It postponed
further action on the bill until June 7.

6/6. Federal Reserve Board (FRB)
Governor Susan Bies gave a
speech titled "Challenges of Conducting Effective Risk Management in
Community Banks" in Coronado, Colorado, in which she recommended contingency
planning at financial institutions for "terrorist attacks and natural
disasters". Although, her statements were applicable to a wide range of business
sectors. She said that "Potential problems include destruction of facilities,
missing personnel, power and communications outages ..." She recommended that
banks "should plan for ways to track and communicate with personnel through a
range of channels, including ways to reach personnel if phone and electrical
services are down". She also said that "Employees may also need to be prepared
to perform services manually if computer systems become unavailable."

6/6. The Senate Judiciary Committee (SJC)
held an executive business meeting. Sen. Arlen
Specter (R-PA), the Chairman of the SJC, discussed the possibility that the
SJC
would issue subpoenas to obtain information from telecommunications carriers regarding
providing phone records to the National Security Agency (NSA). The SJC will not issue
subpoenas at this time.

6/6. Rep. Joe Barton (R-TX),
Rep. John Dingell
(D-MI), and other members of the House Commerce Committee sent a
letter [3 pages in PDF] to the Government Accountability Office
(GAO) requesting
that it conduct a study on the use of (or failure to use) information technology
by dealers in credit-derivatives markets. The Congressmen wrote that
"Dealers are relying on telephones and faxes to conduct and confirm trades
instead of using information technology systems to help them conduct and manage
their credit derivative activities and exposures." The letter asks the GAO,
among other things, to "Determine the extent to which dealers are using
information technology systems to conduct, confirm, transfer, and manage the
risk of credit derivatives transactions, as well as the reliability, resiliency,
and security of any such systems."